Retirement industry group backs annuities in 401(k)s

The Insured Retirement Institute, the annuity advocacy group, has called upon the Treasury and Labor departments to make room for annuity products inside of 401(k) programs. The IRI made the request in a letter sent this week to the two agencies. The group's submission comes just a few days before a May 3 government deadline for requests for information on the possible use of lifetime income products in employer-sponsored retirement programs. “When you consider the retirement reality in America — defined by the unsure footing of Social Security, the near disappearance of pension plans and the record losses in 401(k) plans — it is clear that Americans planning for retirement must have a second form of guaranteed income,” Cathy Weatherford, the IRI chief executive, wrote in the letter. The industry group called on the administration to provide incentives to employers to make guaranteed lifetime income strategies available to workers. It is also seeking simplier rules and fewer administrative burdens for plan sponsors that want to include the income products as either investment or distribution options in their investment offerings. In addition, the IRI recommended that the government make annuities more attractive for customers outside of pension plans by providing education and incentives. The letter, which came in at a hefty 41 pages, also addressed some of the potential drawbacks to using the income products in plans. Those included plan-sponsor liability for putting participants into a default investment and the problem of portability in the event of vendor changes or product removal. Earlier this week, John Hailer, an executive at fund company Natixis Global Asset Management, sent a letter to the Labor Department expressing a slightly different take on the use of annuities in pensions. “Products that require ‘contracts,' ‘lock-ups' or otherwise impair the investor's ability to access the principal or adapt to market changes may not be appropriate for a long investment horizon,” he wrote Instead, Mr. Hailer advocates the use of a diversified portfolio of mutual funds, which he said not only can be built to provide income over a 40-year investment horizon, but also have the regulatory oversight and transparency consumers need.